I must admit to having to reconsider my bold prediction : over the last year or so, I have maintained that crude oil prices would bounce up to around $105 a barrel and then float around there until the end of 2009.

One hundred and five is just over the nice round number of one hundred, and so a psychologically important threshold. I figured that demand for petroleum by-products would be tempered by such things as recession - the natural consequence of a massive credit brick wall - and so the cost price could not escalate wildly.

I figured that the eternal dance between the oil producting countries OPEC and the ROW rest of the world (ie oil consumers) would balance the price and hook it.

I figured that the stock marketeers would not start using any excuse they could find to trade higher. Although they come up with some silly reasons for panick buying/selling, I figured they could not go crazy over the basic energy resource for transport, manufacture, power.

But it seems that I may have been mistaken. Reports of Peak Oil and Peak Natural Gas are starting to roll in, and the first response is a "scarcity response" it seems. Although major Western consumer nations have had heart-to-heart chats with OPEC, they have come away with no promise of any kind to increase production.

There has been no spin whatsoever about this. No attempt to control the price. No blocks on trade.

What is happening ? Are people starting to tell the truth ? And what will happen to Fossil Fuel prices ? The empty cupboard message has even included China - who are apparently at the limits of their coal supply.

I will put in in terms of probabilities. P = 1 means a dead cert. P = 0.5 means a 50% chance of something happening.

P = 1 : crude oil price will continue to rise, and I can no longer see a clear sign of a plateau or drop.

P = 0.5 : crude oil price will be in the region of $150 a barrel by the end of Summer.

P = 0.25 : crude oil price could be $200 a barrel by the end of 2008.

All this just emphasises for me that we must move away from the vagaries of cost price for energy.

Energy should be, and will be in time, measured in Carbon value, or rather, Carbon Permit value.

Currency must become Energy-backed, not the other way round.

We so badly need quotas to avoid the economic instability coming at us from Peak Carbon Energy.

April 25 (Bloomberg) -- Crude oil may rise to $200 a barrel by the end of the year as refiners increase purchases of low- sulfur oil to make diesel fuel, economist Philip Verleger said.

Ultra-low-sulfur diesel powers most U.S. trucks and diesel- burning cars. To make the fuel, refiners are buying more-costly low-sulfur oils such as the West Texas Intermediate crude traded on the New York Mercantile Exchange, said Verleger, president of PKVerleger LLC, in an interview.

``It's conceivable'' oil could rise to $200 a barrel by the end of the year, he said. If economic ``growth resumes, we are short diesel and no way we are going to fill the gap.''

Lower-sulfur crude is easier to refine into ultra-low-sulfur diesel than heavier, higher-sulfur oils, said Verleger, who, in 2005, predicted oil would rise to $100 a barrel. The diesel was introduced to the U.S. in 2006 to cut air pollution.

Converting higher-sulfur crude into diesel requires hydrogen, which is in short supply, Verleger said. The element is a byproduct from making gasoline. Refiners are making less of the motor fuel than in the past because of increased ethanol use, and therefore less hydrogen, Verleger said.

The 2007 Renewable Fuels Standard, signed last December, mandates that the U.S. use 9 billion gallons of renewable fuels, such as ethanol this year and 36 billion gallons by 2022. U.S. gasoline production in November was 1.4 percent lower than two years earlier, Energy Department data show.

Ethanol Requirement

An option ``would be for Congress to waive the ethanol requirement,'' Verleger said. ``There are a lot of reasons to do this.''

Oil has also risen because investment funds are buying commodities, Verleger said. ``These index funds are playing an important role in lifting prices across the board.''

The returns on the index funds are ``negatively correlated'' to stocks and bonds, Verleger said.

``That finding causes the leading pension funds to put more money into these commodity funds because it has the effect of diversifying portfolios,'' he said. ``This is an ongoing processes that probably has another five years to go.''

Crude oil for June delivery rose $2.93, or 2.5 percent, to $118.99 a barrel at 11:01 a.m. on the New York Mercantile Exchange. Prices are up 81 percent from a year ago.

West Texas Sour, a crude oil that is higher in sulfur, was trading at $112.38 a barrel at 9.03 a.m., according to data compiled by Bloomberg.

Opec’s president on Monday warned oil prices could hit $200 a barrel and there would be little the cartel could do to help.

The comments made by Chakib Khelil, Algeria’s energy minister, came as oil prices hit a historic peak close to $120 a barrel, putting further pressure on global economies.

His remarks suggest Algeria wants Opec to continue to resist calls by US and European leaders for the cartel to pump more oil to help ease prices. But Mr Khelil blamed record oil prices on the weak dollar and global political insecurity.

He told El Moudjahid, Algeria’s government newspaper: “I don’t think that an increase in production would help lower prices, because there is a balance between supply and demand and the stocks of gasoline in the United States have recorded a surplus and are at their highest level for five years.”

He added: “The prices are high due to the recession in the United States and the economic crisis, which has touched several countries, a situation that has an effect on the value of the dollar. Each time the dollar falls 1 per cent, the price of the barrel rises by $4 and of course vice versa.”

Some US senators have pinned the blame for high oil prices directly on Opec and Saudi Arabia, its largest and most powerful member.

In a letter to President George W. Bush last week, they said Riyadh had cut its oil production by about 2m barrels a day over the past three years, even though oil prices had continued to rise.

9.15am BST update
Soaring oil price could drive 'weaker airlines' out of business

* Graeme Wearden
* guardian.co.uk,
* Wednesday May 7 2008

The soaring oil price will drive "weaker" rivals out of business, easyJet claimed this morning, despite seeing its own losses treble over the last six months.

With oil hitting a new record of $122 a barrel yesterday, and Goldman Sachs forecasting it could hit $200 a barrel this year, easyJet predicted carnage in the airline industry.

"If the oil price stays high we will see a number of weaker airlines disappear over the next 12 to 24 months," chief executive Andrew Harrison predicted.

The budget airline reported a 15% jump in passenger numbers for the six months to March 31, with revenue growing 24% to ?892.2m. But its pre-tax losses spiralled to ?57.5m, triple the loss it made a year ago. The loss, which was expected following the firm's profit warning in March, was primarily caused by dearer jet fuel, which costs 80% more than a year ago.

Every $10 increase in the cost of a barrel of oil cuts around ?2.5m off easyJet's profits. Harrison claims the company's relatively young fleet - its 157 planes are three years old on average - give it an edge.

"A quarter of Europe's short-haul aircraft are at least 15 years old, so they burn 20% more fuel than our planes," he said.

Rival airline Aer Lingus yesterday blamed fuel costs for an increase in its baggage charges. From tomorrow, it will cost ?12 to check in a bag at the airport.

Shares in easyJet rose 1.3% this morning, gaining 4p to 301.5p. Yesterday it slumped by 8% following Goldman's prediction and the latest record price, which analysts attributed to the weakening dollar and supply problems in Nigeria and Iraq.

With the summer holiday season approaching, easyJet is still confident of making a "very substantial" profit for the full year. Its forward bookings are slightly up on last year, and Harrison said it was not seeing any decline in demand despite the economic uncertainty.

But Andrew Fitchie, analyst at Collins Stewart, advised shareholders to sell. He said a material economic slowdown represented "a further risk to the airlines and low cost carriers in particular".

Oil was slightly off yesterday's record price this morning, trading at $121.55 a barrel in London. Harrison declined to speculate about how the price might move.

"Oil is highly unpredictable, and there are a wide range of predictions from the so-called experts," he said.

The president of Indonesia, Susilo Bambang Yudhoyono, added to market jitters yesterday by predicting his company could quit Opec because it was no longer a net exporter of oil.

Many will cite the Hindenburg, but flying without harming the planet is possible. These craft are worth developing

o George Monbiot
o The Guardian,
o Tuesday May 6 2008

Of all the charges levelled against environmentalists, perhaps the most unfair is the accusation that we are opposed to technological change. Most of the greens I know are fascinated by gadgets (sometimes to the exclusion of better solutions), while some of the people we confront seem terrified by new technologies, and react to them - witness the campaigns against windfarms - with irrational hostility.

But because environmentalists tend to have a feeling for material constraints, we recognise that solutions cannot be conjured out of thin air. In some cases they just don't appear to exist. There are two reasons why we make such a fuss about flying. The first is that, even as governments promise to cut emissions, everywhere airports are expanding. In the UK, the government expects the number of airline passengers to rise from 228 million in 2005 to 480 million in 2030. Before long, there will scarcely be a patch of sky without a jet in it. The other is that there are no alternative means of propelling people through the air which are not more destructive than burning ordinary aviation fuel. Or so we think.

The airline companies prescribe two cures that are even worse than the disease. Even before they are deployed commercially in jets, biofuels are spreading hunger and deforestation. At first sight, hydrogen seems more promising. If it is produced by electrolysis using renewable electricity, it's almost carbon free. The prohibitive issue is storage. Hydrogen contains just a quarter of the energy as the same volume of jet fuel (kerosene), which means that planes could fly long distances only if they were filled with gas, rather than passengers or cargo.

This means that if hydrogen planes are to fly commercially, they need much wider bodies than ordinary jetliners. According to the Royal Commission on Environmental Pollution, "the combination of larger drag and lower weight would require flight at higher altitudes" than planes fuelled by kerosene. A technology that is green at ground level becomes an environmental disaster in the stratosphere. Hydrogen's great advantage - that it produces only water when it burns - turns into a major liability: in the stratosphere, water vapour is a powerful greenhouse gas. The commission estimates that hydrogen planes would exert a climate-changing effect "some 13 times larger than for a standard kerosene-fuelled subsonic aircraft".

But there is another use for this gas, though I am aware that it will go down like a lead balloon with most of my readers. The word airship elicits a fixed reaction in almost everyone who hears it: "What about the Hindenburg?". It's as if, every time someone proposed travelling on a cruise ship, you were to ask: "But what about the Titanic?". Yes, there was a spectacular disaster - 71 years ago. It has lodged in our minds because, like the Titanic, the Hindenburg was bigger and plusher than any craft built before it, and it was carrying rich and prominent people. The conflagration was witnessed by journalists and broadcast all over the world. It also became the technology's funeral pyre: the Hindenburg was doomed long before it burnt, as airships were already being displaced by aeroplanes.

Though the designs have changed, their disadvantages have not disappeared. While a large commercial airliner cruises at about 900 kilometres per hour, the maximum speed of an airship is roughly 150kph. At an average speed of 130kph, the journey from London to New York would take 43 hours. Airships are more sensitive to wind than aeroplanes, which means that flights are more likely to be delayed. But they have one major advantage: the environmental cost could be reduced almost to zero.

Even when burning fossil fuels, the total climate-changing impact of an airship, according to researchers at the Tyndall Centre for Climate Change Research, is 80% to 90% smaller than that of ordinary aircraft. But the airship is also the only form of transport that can easily store hydrogen: you could inflate a hydrogen bladder inside the helium balloon. There might be a neat synergy here: one of the problems with airships is that they become lighter, and therefore harder to control, as the fuel is consumed. In this case they become heavier. Michael Stewart of the company World SkyCat suggests burning both gaseous and liquid hydrogen to keep the weight of the craft constant.

Airships fly much lower than planes, typically at about 4,000 feet, which means their emissions of water vapour have very little effect on temperature. If they were powered by hydrogen fuel cells, they would be almost silent, greatly reducing the effects for people on the ground. Though they are much slower than jets, the cabin can be built much wider, which means that travelling by airship would be rather like travelling by cruise ship, but at twice the speed and using a fraction of the fuel.

There are four small companies trying to get airships off the ground. Most of the new designs make use of aerodynamic lift as well as buoyancy (they are shaped like fat planes with stubby wings or tails), which means they are heavier and more stable than the old dirigibles and can land without help on the ground. They can alight on and take off from almost any flattish surface, including water. But all of them have a problem with flotation - of the financial rather than the physical kind. While the price of carbon stays low, companies have no financial incentive to switch to a different form of transport.

The only help governments are prepared to provide is some development funds for military applications: raising money for killing people is always easier than raising money to save them. For a few years the Pentagon took an interest in craft that could land anywhere and carry several hundred tonnes of equipment. Otherwise, like so many other promising green technologies, this proposal is losing height in a hostile market. All the companies promoting large commercial airships are concentrating on freight, especially in places that are poorly served by roads. The danger here is that, if they take off, they could displace not jet transport but freight shipping - in which case, if they burn diesel, they are likely to cause a net increase in carbon pollution.

Paradoxically, the other major constraint could be an environmental one. Airships are one of several green technologies that might be killed by a shortage of materials. A new generation of solar panels relies on gallium and indium, whose global supplies appear close to exhaustion. The price of platinum, which is used in catalytic converters, has tripled over the past five years. Beyond a few natural gasfields in Texas, economically viable supplies of helium are rare; even there they might be exhausted in 50 years at current rates of use, or much faster if airships take off. If there is a God, he isn't green.

Is this proposal just a flight of fancy? Because airships feature in no official document, because they have not been considered by either government or major industry, I have no way of knowing. But like most greens I'm prepared to try almost anything, as long as it works. Can the same be said of our opponents?

It is about 125 years since shipping oil in wooden barrels became obsolete. An oil price above $125 a barrel, however, and speculation that the price could hit $200 are reminders that we have become ever more dependent on the black stuff. Oil is unlikely to hit $200 and remain above it any time soon ? but economies would suffer if it did.

The underlying reason for oil?s tenfold price rise in less than 10 years is that demand, not least from China and India, has risen rapidly while supply has not kept pace. That dynamic is different to the supply shocks of the 1970s, but because truck drivers and commuters cannot easily stop travelling, even a small deficit in supply can cause large moves in the oil price.

Tight supply and demand have made markets volatile. The spot price of oil for immediate delivery remains above the price for delivery in future months. This suggests particular fear about short-term supplies, while there is some evidence that speculation and worried buyers laying in stocks have pushed up prices. Spot prices could surge or plunge in the short-term, but seem unlikely to return to levels that are low and stable for some time.

Expensive oil has economic effects. Net oil exporters become richer at the expense of net oil importers: Middle Eastern producers can buy more German cars, French clothes and US Treasury bonds in exchange for each barrel. Importers must buy less of everything else in order to keep up their consumption of oil.

Higher oil prices can, but need not necessarily, cause sustained inflation. A rise in the price of oil should be offset by falls in the prices of other goods for which there is now less demand. But if prices do not adjust smoothly, or if workers try to compensate for the cost of oil by demanding higher wages, it can ignite inflation.

Oil-intensive capital equipment may have to be scrapped: the useful life of all of sports utility vehicles, farm equipment and gas-fired power stations, for example, may be shortened. Such shifts cause real economic losses.

So far the world economy has shrugged off higher oil prices. So far the argument has been that, because rich countries now produce far more goods per barrel of oil than they did in the 1970s, a rise in the price does less economic damage. That is correct, but the further the price rises, the less true it becomes. The share of economic output that importing countries must spend on oil has risen dramatically.

For rich countries, the $125 oil price will be a noticeable drag on economic growth; for poor countries, when combined with higher food prices, it will mean more poverty. Oil supply should grow in response but if it does not, $200 oil is just about conceivable. It would cause serious economic disruption, international tensions and currency crises for some poor nations.

If we can keep oil prices up, then the Stock Market will still rise, and keep the whole capital-debt-industry-globalisation-trade thing going.

So, it seems, if George W. Bush agrees to save the Polar Bears, we could have $200 per barrel of oil by the end of 2008, and the rich will be getting richer, as per usual...

...You know what, if I had less integrity, I would invest in Petroleum and Petroleum by-products. But I don't believe that free-market capitalism can contain Carbon Emissions, and I'd rather have a Viable Habitat than a Fat Wallet, thank you :-

May 12 (Bloomberg) -- Protecting the environment is a noble cause, although the consequences can be costly.

Back in August 1973, a biologist found a humble fish called the snail darter in the Little Tennessee River. At the time, it was believed that this species would be pushed to extinction if the Tennessee Valley Authority finished its Tellico Dam.

The snail darter became a celebrity, as environmentalists used the Endangered Species Act to halt the project. It took six
years and an act of Congress to complete the dam.

Since then, the snail darter has been the poster child of endangered species litigation. The fish, which subsequently was
found in other Tennessee waters, established the conventional wisdom about the interaction between endangered species and development. The pattern is familiar. Someone discovers a rare species in a local area. It is declared endangered, and then local projects are blocked.

If things go the right way this week, the local nature of this issue might change. An endangered species could have an effect on economic activity everywhere in the U.S., not just in a single locale. U.S. District Judge Claudia Wilken recently ordered the Interior Department to decide by May 15 whether polar bears should be listed under provisions of the act.

There is a strong chance that the polar bear will be declared ``threatened.'' If so, then everything about the economics of endangered species will be turned on its head.

Why is the polar bear in trouble? The main risk is that global warming will melt ice in the Arctic. Polar bears, biologists believe, need ice to live. Take away the ice, and no more polar bears.

Arctic Predator

The dependence on ice results from the bear's evolution as a predator. They mostly eat seals, and capture them by lurking around on the ice. They can't outswim a seal, but they can pounce on one when the seal slides into its den on an ice floe.

They are so good at hunting on the ice, and so bad at surviving without it, that bears that live in areas that have significant summer ice melts tend to go without food during the iceless times. So it is reasonable to believe that global warming would, if it melted the ice caps, be a serious threat to polar bears.

This week's probable decision is debatable, to say the least. One problem is that the beast, which is notoriously hard to count, exists in vast numbers throughout the Arctic. Opinions even differ as to whether its population is increasing or decreasing.

Population Dispute

For example, professor J. Scott Armstrong of the Wharton School at the University of Pennsylvania recently told Science Daily that ``the polar bear populations have been increasing rapidly in recent decades due to hunting restrictions.''
Others, such as biologists Ian Stirling and Andrew Derocher, see troubling signs of decline in specific subpopulations that live in regions more affected by ice melts.

The truth is, as noted by my American Enterprise Institute colleague Kenneth Green in a recent article, ``Is the Polar Bear Endangered, or Just Conveniently Charismatic?'' we just don't have the data to assess what is happening to polar bear populations.

``Polar bear populations are difficult to measure, in part because they travel so much, are sparsely populated, and live far from people,'' he writes. Even aerial surveys and mark-and- recapture studies, which are the best tools to estimate changes in polar bear populations, offer ambiguous results.

If the polar bear is to be declared threatened it must be because the Interior Department accepts the forecasts of continued global warming, and a significant reduction in Arctic ice.

There are two reasons why that decision, if it is made, will be momentous.

Geographic Reach

The first is the possible wide geographic reach of the global warming argument. The snail darter almost killed a single dam.

The polar bear could, in theory at least, stop everything.

Suppose someone wants to build a coal-burning power plant in Florida. Environmentalists might challenge the construction on the grounds that the plant will emit greenhouse gases leading to global warming and an increased threat to polar bears.

It is hard to say how such challenges would play out. My guess is that it would heighten the pressure on the U.S. to adopt a cap-and-trade emissions program or a carbon tax.

The second impact of this ruling is that it will likely end all Arctic exploration for oil and gas, at least in the U.S.

Given surging world demand for oil, increased supply is the only thing standing between us and $200-a-barrel oil.

Costly Restrictions

These restrictions will have a large cost. ``The U.S. Geological Survey and the Norwegian company StatoilHydro estimate that the Arctic holds as much as one-quarter of the world's remaining undiscovered oil and gas deposits,'' Scott Borgerson, an international affairs fellow at the Council on Foreign Relations, wrote in the March/April issue of Foreign Affairs. ``

Some Arctic wildcatters believe this estimate could increase substantially as more is learned about the region's geology.''
Many biologists believe that global warming is a serious threat to the polar bear. If that leads to the polar bear being listed as threatened this week, then the world you live in will have fundamentally changed.

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He is an adviser to Republican Senator John McCain of Arizona in his bid for the 2008 presidential nomination. The opinions expressed are his own.)

To contact the writer of this column: Kevin Hassett at khassett@aei.org
Last Updated: May 12, 2008 00:01 EDT

Saudis to boost oil output after US pressure
By Javier Blas in London and Andrew Ward in Washington

Published: May 16 2008 14:06

Saudi Arabia said on Friday that it was increasing its oil production to its highest level in two years, bowing to intense US pressure after the price surged to a fresh record of almost $128 a ?barrel.

The announcement of a boost to output by about 300,000 barrels a day came after a plea by US President George W. Bush to King Abdullah of Saudi Arabia in Riyadh...

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It hasn't really impacted on the price "fluctuation", the rising trend in the price of crude.

Speculation does play a very large part in what is happening, but as with all good commodity stories, the largest factor is supply stress.

It gushes out of the ground virtually for free, but the Oil Giants can't rip everybody off totally.

At one time there was a gentle pattern of the cycle of seasonal stress on delivery, but now the graph is only going one way : up.

This is a real price we are looking at, mostly. And demand is genuinely pushing supply. We are into scarcity economics.

Since the price of ancient hydrocarbons is intimately entwined with the price of every other commodity and function of the industrialised economies, the only way is up for the price of everything.

Rapid inflation, here we come.

It's time to think hard about how to guarantee access to Energy for the world's poorest.

And I don't just mean in the Developing nations. I mean right here at home.

Looking over the big water to the United States, we see that tens of millions of American people are relying on food stamps to get enough to eat.

And welfare vouchers may end up being issued for health services as well.

Allowances like these are targeted at the right people, in order to give them the right support. It's effectively a system of rationing, as the welfare budget is fixed.

With Energy and Fuel prices climbing inexorably, how long will it be before the poorest in North America and Europe need to be issued with Energy Cheques in order to continue living in their own homes ?

In the United Kingdom, we already offer Fuel Poverty winter payments.

How many more people need to slip under the "breadline" in order to consider an orderly Energy Ration system ?

With the oil price looking pretty settled above $126 a barrel, what does the UK Government estimate the future oil price to be? Clearly one would imagine that as the most responsible body in the land, charged with making long term decisions that affect us all, they would have their fingers on the pulse of this one. Unfortunately the official position is as insulting as it is pathetic...

When oil was $10 a barrel, the idea that the stuff was running out seemed demented. What a difference a decade makes. It is now possible to make the case that global crude oil production has nowhere to go but down. While that disaster scenario remains unlikely, it is hard to see a comfortable adjustment to oil near $130 a barrel.

In the near future, there is no saying how high the price may go ? forecasting $200 a barrel is a nice way to get some headlines. Such forecasts may come true because in the short term there is little scope either to reduce demand or to increase supply, so it would not take much to drive prices higher.

Crude oil prices could surge to $200 a barrel in the next two years, according to the Goldman Sachs analyst who three years ago correctly predicted a price ?super-spike? above $100 a barrel.

The warning by Arjun Murti came as oil prices hit a fresh high above $122 a barrel, boosted by supply disruptions in Nigeria, lower output in Russia and continued robust demand in China ahead of the Olympics.

Ali Naimi has been the most powerful man in the oil market since he was named Saudi Arabia?s oil minister in 1995. Even the smallest hint from him about future supplies or prices could send energy prices spiralling up or down.

But Mr Naimi?s influence is today being threatened by a gang of Wall Street and the City of London analysts whose price forecasts and trade recommendations are not only moving spot prices but also shaping long-term trends.

The oil price soared to a record for the third day in a row yesterday, reaching $135 a barrel, more than double the price a year ago.

The surging cost of crude is increasing the pressure on petrol and diesel prices and led yesterday to renewed calls for the government to scrap planned rises in fuel duty.

The latest surge came as the CBI, the employers' body, warned that an increasing number of manufacturers were planning to raise prices despite falling order books, adding to inflationary pressures and making further cuts in interest rates less likely.

The US has repeatedly called for oil-producing countries to raise output to calm the market but producers blame speculators and the weakness of the dollar for high prices, rather than supply constraints.

Abdullah al-Badri, Opec secretary general, said the cartel saw no problems with the fundamentals of oil supply and demand. "Even if we increase output tomorrow, the prices will not come down."

Libya's leading oil official, Shokri Ghanem, told Bloomberg TV: "It is out of our hands. $200 a barrel is not logical but even $135 is not logical, so yes oil could reach $200 a barrel. Why not?"

Though the price slipped back from the new record in later trading as the dollar strengthened, analysts believe it will push higher.

"The combination of increasing demand and constricted supply will continue to keep oil prices strong," said Robin Batchelor, manager of BlackRock's BGF World Energy fund, in a research note.

The latest surge in prices has been driven by fears about supplies after the US Energy Information Administration said crude oil stockpiles had fallen last week, contrary to market expectations.

In Britain, the AA motoring organisation warned yesterday that drivers would have to spend ?110m more on fuel over this year's bank holiday than over last year's. Average petrol prices have risen to 112.5p a litre while diesel costs an average 124.17p.

Britain's energy suppliers are expected to increase prices to domestic consumers because of rising wholesale gas and electricity prices. Joe Malinowski at TheEnergyShop.com, the online price comparison and switching service, warned: "Prices are going up and they are going up significantly."

Malcolm Wicks, the energy minister, said the government was talking to oil-producing nations to help curb rising prices.

"Talking to the energy producers is the key thing," he said. "We are doing that in a number of forums. We need a better relationship between the consuming countries for oil and the producers, and I'm confident we will get it, but we are living in difficult times," he told the BBC.

"All of us in Britain and Europe have got to put much more emphasis on energy efficiency and I think these high prices may have the impact of making us all take energy demand and energy efficiency seriously."

"People have to be able to afford to use the car. You can see people's faces looking at the clock as it's ticking away merrily and it's the sheer expense now of taking your car out and of road transport."

In its latest industrial trends survey the CBI said the balance of manufacturers planning to increase prices was the highest since 1995. Ian McCafferty, chief economic adviser at the CBI, said: "It is clear from the pricing data in the survey that manufacturers are really feeling the impact and having to pass their increasing costs on. Oil prices rose more than 75% over the last year, and 14% in the past month alone.

"These rising inflationary pressures make it ever more unlikely that we will see the cuts in interest rates expected by the markets only a few weeks ago."
Backstory

The doubling in the price of oil in the past 12 months has left the market exposed to uncertainty. Last month American investor T Boone Pickens predicted oil could go as high as $125 a barrel but updated that this week to $150 for this year. He seems conservative compared with, say, Goldman Sachs, which bullishly forecast $200 might soon be the tag. But Tim Evans, of Citigroup, said prices might as easily fall - to $40 a barrel - since supplies were "comfortable".

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Also, skip all the political rot and celebrity trash and zone in on Larry Elliott unpacking the oil speculation to Jon Dennis in this Guardian Podcast :-

The chief executive at Gazprom, the Russian energy giant, today predicted that the price of oil will nearly double to $250 per barrel and Europe's dependence on Russia for supplies will increase.

Alexei Miller said the price of gas will rise with oil due to the company?s long-term gas contracts to European customers, which are linked to oil prices.

Speaking at a business conference in the French resort town of Deauville, Mr Miller said that the root cause of rising energy prices was not speculation but competition for resources.

He said: ?There is a certain influence from speculators but this is not a determining influence. We think the oil price will reach $250 per barrel in 2009. The competition for resources is growing and the tendency is very noticeable.?

Mr Miller said Gazprom would invest $30 billion per year in developing new gas transport links and he berated European governments for their efforts to diversify away from Gazprom and seek supplies in Central Asia which he said could lead to higher prices.

?Europe?s desire to diversify is based on the concept that anything is better than relying on Russia but to diversify at any price gives unexpected results,? said Mr Miller, suggesting that Europe?s efforts to build separate gas links to Central Asia bypassing Russia had failed.

Mr Miller said that a route for South Stream, a gas pipeline linking the Balkans with Russia via a sub-sea pipeline across the Black Sea had been agreed and that Slovenia and Austria had recently joined the project.

Widely viewed in Brussels as a rival to the EU?s Nabucco pipeline project which seeks to link Europe to Middle Eastern and Central Asian gasfields via Turkey, South Stream is being vigorously promoted by Gazprom and least week secured the support of OMV, the Austrian energy group which is the lead partner in the Nabucco consortium.

Mr Miller said: ?Some people see South Stream as a threat to Nabucco. Since demand for gas is growing it is not a threat.?

He insisted that his company?s relationship with Europe was one of mutual dependency and he predicted that within seven to ten years Gazprom would be the world?s largest company with a market capitalisation of more than $1 trillion.

?We are already the biggest by gas endowment; we have eight times the reserves of ExxonMobil,? he said.

Gazprom?s deputy chief and the head of Gazexport, Alexander Medvedev, criticised the EU?s efforts to link Gazprom?s long-term sales contracts to spot market prices, suggesting that it would not lead to more competition.

?It would be naive to think that in ten years to come there will be a buyer?s market on theContinent," he said. "The countries that will have gas resources and that willl be able to satisfy demand are Russia, Qatar and Iran. We should not invent gas suppliers that have no gas supplies.?

Mr Medvedev said that Gazprom was not involved in the current talks over the future control of TNK-BP, the Russian affiliate of BP which is embroiled in a dispute with its joint venture partners, Mikhail Fridman, Len Blavatnik and Viktor Vekselberg.

He said that Gazprom had confirmed its interest in the asset when the subject of the sale of a stake arose a year ago: ?Today, there is a corporate conflict internally. We hope the conflict will be resolved.?

Oil is Gazprom?s second priority,after gas and the development of the Russian market which he said would within three to four years become as profitable as the firm's export markets.

Gazprom plans to raise its oil output, which is 100 million tonnes per year, by 4 per cent per year to 2012 at which point it would represent 15 per cent of the company?s total hydrocarbon output.

It seems like a lot of people saw the light about holding bad Carbon assets, and divested themselves rapidly over Summer, scrambling the prices as they ran.

Another view is that demand destruction took hold and undermined the Fossil Fuel prices, but anyway, the price sawtoothed back down for a while.

However, Winter in the Northern Hemisphere is approaching, and there are various views about what Energy demand will look like, so we are in for some more interesting price times.

The futures market in Crude Oil (from OIL-PRICE.net) today stands for 12 months hence as $152.05 per barrel, and by my reckoning, using a pencil to line up the gradients on the curves at WTRG.com and roughly measure the time span, I'd say we're looking at $150 per barrel easily before 12 months is up : around about March 2009 time.

That is, if the Major Final Recession doesn't hit big time by then, which of course, it really could. If the Final Recession of all time starts to bite, then one of two things could happen : either (a) all manufacturing, transport and development everywhere will collapse and the oil prices could collapse with it or (b) people will start to grasp for resources to prop up failing economies and the oil prices could exponentially rise.

There is always a chance of a plateau in oil prices : somewhere around $250 to $300 a barrel is my guess if that happens. That would make it too expensive for ordinary people to assume air con, home heating or leisure driving choices. Because at the same time as raw energy gets the price boost, so will everything else : home utility bills, loan rates, the cost of food, clothing, everthing, will be impacted by the high oil prices, the rising unemployment and the scarcity of basic goods. So ordinary folks will find themselves in the quandry of rising prices for the cost of living ALL ROUND, so energy consumption will have to be controlled...

Oil Prices - A Little More of the Story
Posted by Gail the Actuary on October 27, 2008 - 9:15am
Topic: Economics/Finance
Tags: carry trade, gasoline, oil prices, original [list all tags]

A few days ago, I wrote a post titled Why Are Oil (and Gasoline) Prices So Low? Since then, OPEC has voted to cut oil production 1.5 million barrels a day. In spite of this, the price of oil is about 5% lower. The purpose of this post is to add an update, with a little more of the story about why the price of oil is dropping more than some of us would expect.

One of the issues I mentioned in that story was

4. Rising value of the dollar

I noted in that post that the price of oil seems to drop as the price of the dollar rises against currencies such as the Euro. As I delve into the question more, I am starting to learn more about why the value of the dollar has recently been rising. It seems that the rising value of the dollar is tied to a combination of things--one is the flight to the US dollar for safety, another is the unwind of the carry trade, and a third is margin calls on hedge funds and other borrowers. The rising level of the dollar because of these issues seems to be a major contributor to the recent decline in oil prices.

...

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You need to look at the history of the oil prices to get the bigger picture...

A combination of lower crude prices, the credit crisis and massive liquidations of hedge fund and mutual fund portfolios are behind their downfall.

Meanwhile, OPEC is scrambling to cut its crude oil production to stem what it calls "a dramatic collapse" in prices

For the consumer, prices at the pump may slip further and are unlikely to return to previous highs for a while. For the investor, experts say, there are opportunities to buy oil stocks at prices far lower than the value of their underlying businesses.

Dennis Gartman, editor of the Gartman Letter in Suffolk, Va., doesn't believe the slide in crude is over yet.

"Oil prices are probably headed lower still, because that commodity's history is that once it starts to go lower, it continues to go lower," he said. Many endowment and pension funds had been advised by financial consultants that they should be in the commodity markets, Gartman said. Once those investments began losing money, however, they abruptly headed for the exits.

No one is saying the threat of higher oil prices is over forever, but prices are definitely in a lull.

"I think that oil prices are likely to bounce between $60 and nearly $100 a barrel, but I doubt we'll face triple digits in the next 12 months," said Tim Parker, energy analyst with T. Rowe Price in Baltimore.

Sometime in the next three years, oil prices likely will be back at higher levels again, he said, because the United States hasn't fixed the problem of dependence on foreign oil.

"Gasoline prices at the pump should be headed down to $2.50 a gallon, depending on where you are," Parker said. "As oil prices head back toward $100 a barrel, pump prices will be between $2.50 and $3, but won't be $3.50 a gallon until oil prices are at $120 or $150."

But energy issues aren't going to go away.

"We've lowered our oil forecast for 2008 to $105 a barrel, which means oil would have to average around $80 a barrel in the fourth quarter," said Philip Weiss, oil analyst with Argus Research in New York. "For 2009, we have an estimate of $90 a barrel on average, with supply and demand the key factors."

Oil stocks have been hit too hard, Weiss said. Although oil prices aren't much higher than three years ago, more than half the oil stocks Weiss covers are trading at lower prices now than they were then.

"My tendency has been to upgrade stocks in this environment," Weiss said. "If you're a long-term investor looking for undervalued stocks, the oil sector is a good place to go because we've had an irrational correction."

Weiss recommends these stocks:

•Contract drillers Transocean Inc. and Noble Corp., both with extensive deepwater oil and gas drilling activity and a backlog of contracts.

•BP PLC, a solid oil stock with strong dividend yield that is a great place to wait until the oil market turns around.

•Marathon Oil Corp., an inexpensive stock because it has more refining than some competitors, and refining has been hit especially hard. It has an exploration and production business that should be able to grow at a 7 percent to 8 percent clip over the next five years, Weiss said.

"There has been a lot of talk about alternative energy, but it is not that imminent, and developing world economies are going to be using oil, natural gas and coal to grow," Weiss said. "While oil might not be a good investment 10 or 20 years from now, there are real opportunities now, and none of these companies are going away."

Whether stocks or commodities, in the topsy-turvy investment world it is difficult to make exact predictions. Up or down is about the best any expert can do.

"I've been at this for 35 years and have learned that if I tell someone oil prices are going lower, say to $55 a barrel, and it goes to $58, I look like an idiot," Gartman said. "The only thing that makes you look wise is to say that it looks like the trend is down."